Accounting for a loan of honor

The loan of honor as such does not have to be entered in the accounts of the company created or taken over by the project sponsor since it is the latter who is indebted to it, personally. What it finances, on the other hand, must be. This will mainly concern investments, start-up stocks or, more generally, the working capital requirement of the company.

The consideration for this investment must be recorded either as a capital contribution or as a current account. The accounting treatment will depend on the provisions of the loan agreement (in the case of the sole proprietorship, there is only one possibility).

Here are the different possible accountings depending on the nature of the goods financed by the loan of honor (non exhaustive list). The counterparty will depend on the method of acquisition:

Either the project holder makes the investments directly with the loan of honor without going through the account of his company (he must make sure to put the name of it on the invoice)

In this case, at each purchase, the counterparty to be used will be Account 4551 "Partners - Current Accounts" for companies (EURL, SASU, SAS, SARL, SA, SCA, SNC, etc.) Operation "for the sole proprietorship. The company must then reimburse the partner or company manager.

Either the project sponsor places the money from the loan of honor on the account of his company which makes the investments itself

Here, the partner consents an advance on the current account to the company. It must be accounted for as follows: debit from account 512 "Bank" by crediting account 4551 "Shareholders - Current accounts". In the case of the individual contractor, account 108 must be used. Subsequently, the consideration for each purchase will be a cash account (account 512 "Bank").